- The Anti-Money Laundering Regulation passed a final vote in the European Parliament.
- The bill compels crypto firms to collect more data on users.
- Tools providing anonymity services will be banned under the bill.
Crypto may lose some of its promise of privacy and self-banking after the European Union voted to crank up the monitoring of the industry in a bill targeting money laundering in financial institutions and risky ventures.
The bill passed by the European Parliament will force crypto firms to collect more data on users and their transactions, enforce stronger monitoring of non-custodial wallets, and ban tools bolstering anonymity such as crypto mixers and privacy tokens.
“The biggest loss will be the loss of privacy and relative transaction ease we’ve gotten accustomed to in the industry,” Marina Markezic, executive director of the trade association European Crypto Initiative, told DL News.
The crypto industry has closely watched the almost three years of negotiations leading up to the vote, which came amid a wider crackdown against the privacy features that are a significant lure for supporters of decentralised finance.
Stay ahead of the game with our weekly newsletters
“From cash to crypto, from real estate to luxury goods and football clubs, we are targeting all areas where there is a real risk of illegal activity,” EU Financial Commissioner Mairead McGuinness said on Wednesday.
The regulation updates and tightens rules against financial crime across the 27-nation bloc for financial and credit institutions. It is part of a broader package renewing the EU’s approach to money laundering.
Lawmakers brought crypto asset-service providers into purview, beefing up the requirements crypto firms need to carry out to collect data on user identification.
The bill, at the final steps before it becomes law, comes as money-laundering concerns plague the crypto industry.
Join the community to get our latest stories and updates
Software developers behind crypto mixer Tornado Cash are under the microscope in Europe and in the US. Prosecutors are accusing the developers of allowing criminals to launder $1.2 billion of dirty money.
And Changpeng Zhao, founder and former CEO of Binance, the world’s largest crypto exchange, faces sentencing next week after pleading guilty to breaking rules to prevent money laundering in the US.
Starting in 2026, a new EU agency in Frankfurt, Germany, will oversee the laws against money laundering and terrorism financing, and directly supervise the riskiest institutions.
But before that, EU finance ministers will need to stamp the text before it is published as law.
Self-hosted wallets
Crypto firms will need to keep a closer eye on non-custodial wallets, or what European lawmakers call “self-hosted wallets.”
These wallets allow individuals to have full ownership and control of their own funds, without any intermediaries. This financial independence represents one of the core propositions of the crypto industry.
Service providers will have to identify and verify users, monitor transactions, and request more information about senders and receivers.
All of that goes against best industry practices to hold crypto assets in a secure non-custodial wallet rather than in a custodial wallet to safeguard users from weaknesses in centralised exchanges and crypto custodians.
“This is indirectly discouraged by the regulation,” Markezic said.
The legislation won’t affect service providers that are developing software for non-custodial wallets that are purely technological, such as MetaMask.
An earlier version of the bill would have imposed limits on the funds merchants could accept from self-hosted wallets, but that was scrapped in the final version following industry lobbying.
Banning anonymity tools
The bill also bans tools that enable anonymity. That includes listing tokens like Monero or Zcash.
Offering crypto mixing services, which obfuscate transaction history, will also be banned.
Now, crypto firms must identify and verify the identity of users, monitor transactions, and request more information about senders and receivers.
Know-your-customer, or KYC, processes could end up placing burdens on users rather than encouraging them to use blockchain technologies, Markezic said.
For crypto transfers under €1,000, service providers need to perform basic KYC to identify their users.
For transactions higher than €1,000, customer due diligence measures apply, which means longer-term tracking of user behaviour and identity on top of KYC.
Still, some bias remains against self-hosted wallets. For the same measures, cash payments are restricted to €10,000.
Clear rules
On the bright side, the crypto industry will have safer guardrails to prevent crime and damage to users, which may help adoption of crypto assets, Markezic said.
The regulation gives “certainty and predictability,” Markezic said, especially for newcomers. The anti-money-laundering rules make the crypto industry “more attractive to investors and users with no prior crypto experience,” she said.
Inbar Preiss is a Brussels-based regulation correspondent. Contact her at [email protected].
